Market regulator Sebi mulls steps to limit finfluencers' influence

New payment mechanism; brand promotion restrictions on intermediaries

The Securities and Exchange Board of India (Sebi) proposed via a discussion paper on Friday to limit the involvement of regulated entities such as investment advisors, mutual funds, and brokerages with financial influencers in any promotion or advertisement.

The much-anticipated norms from the markets regulator aim to address the potential misuse of such channels and outline action in specific instances.

Most financial influencers, or "finfluencers", engage in brand associations to promote the products or services of financial entities. In return, these finfluencers may earn referral money, a share of the profit, non-monetary benefits, or compensation from social media platforms.

“Finfluencers not registered with the relevant financial sector regulator may lack the requisite qualifications or expertise on the subject. Worse still, without being formally subject to a financial sector regulator's code of conduct, they might not disclose any potential conflicts of interest, such as their connection with or interest in the products, services, or securities that they promote,” Sebi noted in the discussion paper.

Sebi has also proposed to prohibit entities registered with stock exchanges or the Association of Mutual Funds in India (Amfi) from revealing any confidential information about clients to unregistered entities.

Furthermore, in the consultation paper, Sebi stated that registered intermediaries will have to take active measures to disassociate themselves from any unregistered entity using their name, product, or service — and report it to enforcement agencies, which may then file a case for impersonation and fraud.

New payment system

In a two-pronged attack on unregistered finfluencers or entities acting as investment advisors (IA) and research analysts (RA), Sebi has proposed to establish a new fee collection mechanism.

Under this proposed mechanism, all client fees will be processed on a designated platform and directed to a Sebi-recognised supervisory body “Any payment made outside the specified mechanism will not be considered as payment towards investment advisory/research services under Sebi (Investment Advisers) Regulations, 2013/ Sebi (Research Analysts) Regulations, 2014, and no grievances in this regard will be entertained by the Sebi-recognised regulatory body or Sebi,” the regulator has stated in another  consultation paper, inviting feedback until September 15.